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European Commission accepts Paramount Pictures' commitments as part of its ongoing investigation into the major US film studios

On 26 July 2016, the European Commission announced its acceptance of certain commitments by Paramount Pictures relating to the ongoing investigation into licensing agreements between the six major US film studios (Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros) and Sky UK.

US film studios typically license films to a single pay-TV broadcaster in each Member State (or group of Member States speaking a common language).

EU competition rules prohibit the restriction of passive sales, i.e. sales of products between different EU Member States in response to unsolicited orders from customers. On the other hand, restrictions on active sales into a territory granted exclusively to another pay-TV broadcaster (or reserved to the rights holder) may be permitted under the EU's vertical agreements block exemption.

The Commission's ongoing investigation, opened in January 2014, has identified clauses in relevant licensing agreements which require Sky UK to block access for consumers outside the UK and Ireland to films through its online pay-TV services (so-called geo-blocking) or through its satellite pay-TV services.

On 23 July 2015, the Commission sent a Statement of Objections to Sky UK and the studios. A Statement of Objections is the formal allegation of infringement in Commission investigations into suspected infringements of EU competition rules. Infringements mean relevant arrangements are unenforceable and undertakings which are parties to them may be fined up to a maximum of 10% of their total worldwide turnover.

The Commission has taken the preliminary view that each of the six studios and Sky UK have put in place contractual restrictions that prevent Sky UK from allowing EU consumers located outside the UK and Ireland to access British and Irish pay-TV services.

In its October 2011 ruling on the Premier League/Murphy cases (C-403/08 and C-429/08), the European Court of Justice specifically addressed the issue of absolute territorial restrictions in licence agreements for broadcasting services. The Court held that provisions preventing a satellite broadcaster from providing its broadcasts to consumers outside the licensed territory eliminate competition between broadcasters and partition the EU single market along national borders.

It was announced on 22 April 2016 that Paramount Pictures had offered certain commitments, to last for five years, aimed at addressing these concerns:

when licensing its film output for pay-TV to a broadcaster in the European Economic Area (EEA), Paramount Pictures would not introduce or reintroduce contractual obligations:

which prevent or limit a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside the pay-TV broadcaster’s licensed territory (no Broadcaster Obligation); or

which require Paramount to prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (no Paramount Obligation);

Paramount Pictures would not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing agreement licensing its film output for pay-TV; and

Paramount Pictures would not act upon or enforce a Paramount Obligation in an existing agreement licensing its film output for pay-tv.

The commitments, which have now been accepted by the Commission, cover both standard pay-TV services and, to the extent that they are included in the licences with a broadcaster, also subscription video-on-demand services. The commitments cover both satellite broadcast services and online services.

If Paramount Pictures breaks the commitments, the Commission can impose a fine of up to 10% of the group's worldwide turnover, without having to find an infringement of the EU competition rules.

Nothing similar has yet been offered by any of the other major studios and the Commission has not indicated timing for any further steps in its investigation, other than to say that its investigation into the other studios is ongoing.

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